An interview with Eddie Hui, chief executive officer of Sëmk Products Ltd
Sëmk is a design company that used to focus on the overseas market. As the business environment evolved, the company gradually shifted its development focus by launching its own brands and venturing into the Chinese mainland. Today it has completely withdrawn from OEM operations and turned to ODM and own brand businesses. Such a growth story is quite common among Hong Kong companies. This article tells of the experience of Eddie Hui, chief executive officer and chief designer of Sëmk, in developing the China market.
Creation of B. Duck brand Sëmk created the B. Duck brand with a duck as its theme, gaining popularity among fans in Hong Kong, the mainland and overseas. As a kind of performance art, B. Duck has undoubtedly created a mania among consumers in the recent two years. Since Sëmk first launched B. Duck products eight years ago and a full range of products are available on the market, the B. Duck mania has brought to the company further opportunity which Eddie Hui has seized to develop the market of China. Today, the company has set up more than 150 sales outlets on the Chinese mainland.
B. Duck has positioned itself at the medium- to high-end market on the Chinese mainland, offering a wide range of product types. Last year, the company’s clothing line with B. Duck designs made its debut on the mainland. B. Duck is a brand that focuses on products. It does not have any spinoffs such as animation or any product ambassador. It simply appeals to its fans with adorable product designs.
In-house design and production
Apart from its key design team in Hong Kong, Sëmk has set up another design team in Shenzhen and two factories in Huizhou. With its own production facilities, it can solve the problem of upstream production support encountered by many designers. As the introduction of each new design may require the trial production of a few hundred items only, outsourcing the production to other factories does not work since they often demand a minimum quantity of a few thousand. Outsourcing will also mean lower operational flexibility and cause cash flow pressure.
At present, Sëmk offers a wide range of product types from electronics, home products, sanitaryware, gifts, kitchenware, stationery items to travel goods that nearly cover all aspects of daily lives. New product collections and designs are introduced onto the market every two to three months. As “well begun is half done”, new products can now be more readily “digested” by its own sizeable retail network as well as customers in export markets.
Ample room for brands
About seven years ago in the lunar Year of the Pig, Sëmk unexpectedly received an order from the mainland for some gift items featuring the Chinese zodiac. “We found that the size of one single order from the mainland may equal that of all orders from Europe put together. We then began to pay attention to the development of the mainland market,” said Eddie. Today, the company has more than 150 retail outlets on the mainland market of which over 30 are directly operated stores and the remainder are franchise stores. The direct stores are mostly located in Beijing, Shanghai, Guangzhou and Shenzhen with some in Wuhan and Suzhou. They are mainly set up in shopping malls and department stores.
In recent years, the markets of both Japan and Europe are shrinking. While orders from the US are more forthcoming, price cutting is intense. As a result, Eddie decided to withdraw completely from OEM business in 2008, focusing on the development of the company’s own brands instead.
“For the mainland market, we basically focus on gift items at the medium to high end while pursuing a fashionable and humorous line. At present, competitors are still limited in China’s market.” In the opinion of Eddie, the gift market of China still offers ample room for brands since competitors are few. Most of its competitors are brands from Japan and the US, such as Disney and Transformer.
High purchasing power and receptiveness to new designs
“The purchasing power of consumers on the Chinese mainland has risen substantially in recent years. Even a few years back, we already found that the sales of the retail stores in Shanghai have surpassed those of Hong Kong.” As pointed out by Eddie, the sales of stores in good locations of Beijing and Shanghai very easily double those of Tsimshatsui. Even for second- and third-tier cities such as Chengdu and Changsha, the purchasing power of their consumers is also very high.
Apart from strong purchasing power, consumers on the Chinese mainland are also highly receptive to the product designs of B. Duck. “In designing a product, we should know which market is our target,” said Eddie. For product design, B. Duck always develops new series that specifically cater for the mainland market, such as products in celebration of the Chinese New Year, whereas foreign brands from Europe and the US seldom tailor specific products for the mainland market such as festival items. “One of the reasons why mainland consumers like B. Duck is that our products are down-to-earth and can relate to their daily lives.”
In face of the copycat problem on the mainland, B. Duck introduces new designs and new product types every now and then. On average, there are 30 to 40 new designs every season. In Eddie’s opinion, the middle-class consumers on the mainland are now attaching great importance to original products and they do not go for copycats for the sake of low price. These middle-class consumers not only focus on the functionality of products, but also look more for some sense of fashion.
Brand promotion through joint efforts with shopping malls
Organising activities, such as B. Duck product display, with shopping malls is one of the company’s promotion strategies. At present, there are three B. Duck promotion teams to conduct tour shows in shopping malls of different cities on the mainland. The shows help build up the brand image on the one hand and draw in customers for the shopping malls on the other. According to Eddie’s observation, since China-Japan relations are now at a low ebb, many shopping malls are staying away from Japanese brands in their marketing efforts in order to forestall any unnecessary troubles. This has in turn increased the opportunities for other brands to cooperate with shopping malls in marketing and promotion. Apart from cooperation with shopping malls, B. Duck also tries to build up a positive brand image through working with various charitable organisations and offering special product series for charity purpose.
In terms of organisation, the company is divided into different business teams including online sales, licensing, retail, and wholesale/franchising. While their tasks are different, these teams all deal with B. Duck products. As for franchisee selection, Eddie points out that they have expanded too fast at one point, but have now changed to focus on long-term cooperation through communication and trial and error. Their philosophy today is that quality is more important than quantity, and the key is to identify franchisees with heart.
Online sales: exponential growth
As regards the prospect of online sales, although this channel only constitutes some 10% of total sales of B. Duck, its growth potential can be enormous. To Eddie, online sales could expand exponentially to account for 30-50% of the total sales of B. Duck in the coming few years.
At present, online sales of B. Duck products are mainly conducted through Taobao. Their future strategy is to separate online sales from offline sales so as to minimise any possible conflict between the two. For example, no discount is ever offered at physical stores. Yet on special occasions such as Singles’ Day, online sales can hardly do without discount. The company therefore plans to separate their online sales from offline sales in future. “As we have a wide range of products, there should be room for us to allot different products to online and offline channels,” said Eddie.
B. Duck is actively expanding its online sales operation. They have even recruited a team from Taobao to help them set up the online sales business. Eddie points out that they can find a great deal of useful marketing information from Taobao, such as what kind of customers from which regions have searched for “B. Duck”. They can even analyse which spot on the webpage is most appealing to customers so that they can place their latest products on that spot.
B. Duck has also made extensive use of social networks such as WeChat, Weibo and QQ to promote its brand, attract customers and boost sales. As a practical tip to interested Hong Kong companies, Eddie said, “All these require tremendous input in terms of time and energy as our mainland competitors are more familiar with local cultures and business operations. This is all part of the process of adapting to local market conditions.”
Eddie frankly points out that tapping the retail market on the mainland involves a great deal of learning. Time and effort must be devoted to understanding different sales channels, such as shopping malls, department stores and franchise stores, as well as the tax system. Different regions come with different characteristics. For example, Shanghai and Shenzhen have many large-scale modern shopping malls whereas the northern region such as Shandong is still dominated by traditional department stores. From the experience of Eddie, these local characteristics have to be explored through personal visits to different regions and cities. Otherwise, adapting to local conditions could be a problem. In the case of B. Duck, it has put in place a set of unified image design for stores operating in shopping malls. Yet when it sets up counters in department stores, they find that the image design used for stores is not appropriate and requires adjustment. “Getting involved is required for tapping the mainland market,” said Eddie.
For e-commerce, the online sales of B. Duck exceeded Rmb200,000 during Singles’ Day on 11 November 2012, and they hope that it can increase to Rmb3 million this year. Eddie said, “Taobao hopes that total sales will reach Rmb35 billion on Singles’ Day this year. Under this estimation, a sale volume of Rmb3 million is only equivalent to a few seconds of Taobao’s sales on that day. Yet to reach this sales target, we must devote considerable effort and energy, and learn how the local market works from the perspective of the local people. Don’t just ask how to do it. Only with personal involvement and attempts can we truly understand how it operates.”